1

Our Ref: VC/EDL 9 October 2018 Yamada Green Resources Limited Houyu Food Industry Zone, Jingxi Town Minhou County, Fuzhou City, Fujian Province PRC 350101 The People’s Republic of China Attention: The Audit Committee Agreed upon procedures on Yamada Green Resources Limited (the “Company”) and its subsidiaries (the “Group”) Dear Sirs We have performed agreed-upon procedures in connection with the Group’s disposal of the Moso bamboo plantations (“Disposal Transaction”) which occurred in August 2017 but was not made known to the Board until August 2018. The procedures that we have agreed to perform are set out in our engagement letter dated 27 August 2018. Our engagement was undertaken in accordance with Singapore Standard on Related Services applicable to agreed-upon procedures engagements. The procedures were performed solely to investigate on the Disposal Transaction and to report our findings to the Audit Committee. Because the above procedures do not constitute either an audit or a review made in accordance with Singapore Standards on Auditing or Singapore Standards on Review Engagements, we do not express any assurance on the agreed upon procedures on the Disposal Transaction. Had we performed additional procedures, or had we performed an audit or review of the financial statements of the Company in accordance with Singapore Standards on Auditing or Singapore Standards on Review Engagements, other matters might have come to our attention that would have been reported to you. Our report is solely for the purpose set forth in the first paragraph of this report and for your information and is not to be used for any other purpose or to be distributed to any other parties. This report relates only to the Disposal Transaction above and does not extend to any financial statements of Yamada Green Resources Limited, taken as a whole.

(Cont’d)

2

This report has been prepared solely for the information of the Audit Committee of Yamada Green Resources Limited for the purpose set out in our engagement letter dated 27 August 2018 and is not intended for general circulation or publication nor is it to be used for any other purpose without our prior consent in each specific instance. We do not assume responsibility for loss or liability to any party whatsoever, howsoever arising, out of the use of this report contrary to the provisions of this paragraph. Yours faithfully, For and on behalf of Foo Kon Tan LLP

Appendices enclosed as attachments:

Appendix A Interview with the legal representative of Lijiashan, Xiong Appendix B Interview with the legal representative of Shansheng, Cai Appendix C Interview with director of the Company, Wangsheng and Yuanwang, Lin Appendix D Interview with professor from the Fujian Agricultural and Forestry University Appendix E Interview with ministry from the Fujian Provincial Department of Forestry Appendix F Interview with independent valuer, Jones Lang Appendix G Interview with assignee of Lijiashan’s Plantations, Mao Appendix H Interview with assignee of Shansheng’s Plantations, Ni Appendix I Interview with Danggui Appendix J Interview with Yuantou villagers’ committee Appendix K Interview with Shan Feng Appendix L Interview with Peng

3

YAMADA GREEN RESOURCES LIMITED

(the “Company”)

AND ITS SUBSIDIARIES

(the “Group”)

EXECUTIVE SUMMARY

ON AGREED UPON PROCEDURES

ON THE DISPOSAL TRANSACTION

This report is issued to the Audit Committee of Yamada Green Resources Limited and

should not be distributed to third parties without our prior consent in writing

4

Contents

Glossary

1. Executive Summary ....................................................................................................................... 11

1.1 Background ........................................................................................................................... 11

1.2 Interview venue .................................................................................................................... 12

1.3 Objectives of the agreed upon procedures .......................................................................... 13

1.4 Fact-finding observations and conclusion ............................................................................ 13

1.4.1 Control over legal representatives ....................................................................................... 13

1.4.2 Rationale of leases of Plantations ........................................................................................ 15

1.4.3 Process of the Disposal Transaction ..................................................................................... 16

1.4.4 Independent valuer .............................................................................................................. 23

1.4.5 Ministry from the Fujian Provincial Department of Forestry ............................................... 24

1.4.6 Internal reporting to the Board by Chen and Rex ................................................................ 24

1.4.7. The facts surrounding the Disposal Transaction .................................................................. 24

1.4.8. Whether the Plantation had encumbrances when it was disposed. If so, to ascertain the

circumstances under which the encumbrances were created and for whose benefits. ..... 24

1.4.9. Interview with the Plantations’ contractor and/or subcontractor ....................................... 25

1.4.10. Interview with the assignees ................................................................................................ 26

2. Scope of Work ............................................................................................................................... 27

Appendix A Interview with the legal representative of Lijiashan, Xiong

Appendix B Interview with the legal representative of Shansheng, Cai

Appendix C Interview with director of the Company, Wangsheng and Yuanwang, Lin

Appendix D Interview with professor from the Fujian Agricultural and Forestry University

Appendix E Interview with ministry from the Fujian Provincial Department of Forestry

Appendix F Interview with independent valuer, Jones Lang

Appendix G Interview with assignee of Lijiashan’s Plantations, Mao

Appendix H Interview with assignee of Shansheng’s Plantations, Ni

Appendix I Interview with Danggui

Appendix J Interview with Yuantou villagers’ committee

Appendix K Interview with Shan Feng

Appendix L Interview with Peng

Glossary

5

Allbright Allbright Law Offices (锦天城律师事务所), PRC legal counsel appointed

by the Board

Assignment of land lease (also known as “transfer of the land lease”)

The transfer of the land lease together with the Plantations to the contracting party (Assignee) to continue the lease.

Assignee In the case of Lijiashan, the assignee was Mao under the Disposal Agreements in the Deed of Third Assignment. In the case of Shansheng, the assignee was Ni under the Disposal Agreement in the Deed of Fourth Assignment.

Audit committee Audit Committee of the Company

BDO BDO LLP

Board Board of Directors of the Company

Cai 蔡继强, former legal representative, chairman and general manager

(法定代表人，董事长兼总经理) of Shansheng. Appointed for the period from 19 March 2015 to 26 July 2018

Chen 陈秋海 (Chen Qiuhai), Executive Chairman and Chief Executive Officer

(执行主席兼首席执行官) of the Company

Chua Chua Ser Miang, Lead Independent Director of the Company and a member of the Audit Committee

Company Yamada Green Resources Limited (山田绿色资源有限公司)

Contractor Lijiashan The contracting party (known as the contractor) for Lijiashan for the maintenance of the Plantations (also known as “maintenance”) was Danggui. The contract for maintenance was transferred by Danggui to Mao as subcontractor (known as the subcontractor) with the consent of Lijiashan on 29 April 2016. The contractor for Lijiashan for pest control of the Plantations (also known as “pest control”) was Mao. The contract for pest control was dated 28 July 2016. The contractor for Lijiashan for the harvesting of bamboo shoots was Danggui. The contract for the harvesting of bamboo shoots was transferred by Danggui to Mao as subcontractor with the consent of Lijiashan on 23 January 2017. Shansheng The contractor for Shansheng for maintenance was Shan Feng. The contract for maintenance was transferred by Shan Feng to Ni as subcontractor with the consent of Shansheng on 28 April 2016. The contractor for Shansheng for pest control was Ni. The contract for pest control was dated 28 July 2016.

Glossary

6

The contractor for Shansheng for harvesting of bamboo trees (the harvesting of bamboo shoots and bamboo trees are collectively known as “harvesting services”) was Ni. The contract for harvesting services was dated 28 July 2016.

Danggui Pu Cheng county Min Pu Osmanthus Seedling Plants Cooperative (浦城

县闽浦丹桂苗木种植专业合作社) (“Danggui”)

Deed of First Assignment

In the case of Lijiashan, a binding agreement for the assignment of land lease entered into between Lijiashan and Yuantou villagers’ committee on 23 April 2013 whereby the land lease was transferred by Yuantou villagers’ committee to Lijiashan (“Part 1”), and two binding agreements for the assignment of land lease entered into between Lijiashan and Danggui on 5 May 2014 and 26 June 2015 whereby the land leases were transferred by Danggui to Lijiashan respectively (“Part 2 and Part 3”) as follows:

Land lease by Lijiashan:

Part Transferred by

Location Area (mu)

Period (years)

Commencing

1 Yuantou villagers’ committee

Pucheng 11,302 15 16 April 2013

2 Danggui Pucheng 22,543 10 5 May 2014

3 Danggui Pucheng 15,147 10 26 June 2015

Total 48,992

Yuantou villagers’ committee and Danggui are known as the “lessor(s)”.

Deed of Second Assignment

In the case of Shansheng, two binding agreements for the assignment of land lease entered into between Shansheng and Shan Feng on 9 September 2014 and 28 January 2016 whereby the land leases were transferred by Shan Feng to Shansheng respectively (“Part 1 and Part 2”) as follows:

Land lease by Shansheng:

Part Transferred by

Location Area (mu)

Period (years)

Commencing

1 Shan Feng Jiangle 67,000 10 9 September 2014

2 Shan Feng Jiangle 13,704 10 28 January 2016

Total 80,704

Yuantou villagers’ committee, Danggui together with Shan Feng are collectively known as the “lessor(s)”.

Deed of Third Assignment

In the case of Lijiashan, the Deed of Third Assignment arising from the Disposal Transaction for an aggregate consideration sum of RMB 13,291,349 as follows:

- An agreement dated 23 August 2017 for the assignment of the land lease by Lijiashan to Mao for the land area of 11,302 mu for a consideration sum of RMB 3,997,235 with the lessor in Part 1 of the Deed of First Assignment, Yuantou villagers’ committee, agreeing to Mao as the new contracting party to the land lease; and

Glossary

7

- An agreement dated 23 August 2017 for the assignment of the

land lease by Lijiashan to Mao for the land area of 37,690 mu for a consideration sum of RMB 9,294,114 with the lessor in Part 2 and Part 3 of the Deed of First Assignment, Danggui, agreeing to Mao as the new contracting party to the land lease.

The Disposal Transaction entered into between Lijiashan and Mao are summarised as follows:

Assignee Consent by Location Area (mu)

Consideration sum (RMB)

Mao Yuantou villagers’ committee

Pucheng 11,302 3,997,235

Mao Danggui Pucheng 37,690 9,294,114

Total 48,992 13,291,349

Deed of Fourth Assignment

In the case of Shansheng, the Deed of Fourth Assignment arising from the Disposal Transaction for an aggregate consideration sum of RMB 33,943,766 as follows:

- An agreement dated 23 August 2017 for the assignment of the land lease by Shansheng to Ni for the land area of 80,704 mu for a consideration sum of RMB 33,943,766 with the lessor in Part 1 and Part 2 of the Deed of Second Assignment, Shan Feng, agreeing to Ni as the new contracting party to the land lease.

The Disposal Transaction entered into between Shansheng and Ni is summarised as follows:

Assignee Consent by Location Area (mu)

Consideration sum (RMB)

Ni Shan Feng Jiangle 80,704 33,943,766

Total 80,704 33,943,766

Disposal Agreement In the case of Lijiashan, refer to the Disposal Agreements as mentioned in the Deed of Third Assignment. In the case of Shansheng, refer to the Disposal Agreements as mentioned in the Deed of Fourth Assignment. The Disposal Agreements as mentioned in the Deed of Third Assignment and in the Deed of Fourth Assignment are collectively known as the “Disposal Agreements”.

Disposal Transaction The assignment of land lease to the assignee(s) arising from the execution of the Disposal Agreement.

Equity Law Equity Law LLC, Singapore legal counsel appointed by the Board

Feng 冯文新 , Village party secretary (村支书 ) and President of Family

Planning Association (计生会长) of Yuantou villagers’ committee

FKT Foo Kon Tan LLP

Glossary

8

FY2016 Financial year ended 30 June 2016 of the Company

FY2017 Financial year ended 30 June 2017 of the Company

George Xiong Independent valuer (独立评估师 ) of Jones Lang LaSalle Corporate

Appraisal and Advisory Limited (仲量联行企业评估及咨询有限公司)

(“Jones Lang”) to Shansheng and Lijiashan

Group Comprising the Company and its subsidiaries

Jiangle Jiangle county 将乐县, Fujian Province, PRC

Lai 赖学舜 , Commissioner (处长 ) of Fujian Provincial Department of

Forestry (福建省林业厅)

Land lease The land lease in connection with the Deed of First Assignment is as follows:

Land lease by Lijiashan:

Part Transferred by Location Area (mu)

Period (years)

Commencing

1 Yuantou villagers’ committee

Pucheng 11,302 15 16 April 2013

2 Danggui Pucheng 22,543 10 5 May 2014

3 Danggui Pucheng 15,147 10 26 June 2015

Total 48,992

The land lease in connection with the Deed of Second Assignment is as follows:

Land lease by Shansheng:

Part Transferred by Location Area (mu)

Period (years)

Commencing

1 Shan Feng Jiangle 67,000 10 9 September 2014

2 Shan Feng Jiangle 13,704 10 28 January 2016

Total 80,704

The land lease in connection with the Deed of Third Assignment is as follows:

Assignee Consent by Location Area (mu)

Consideration sum (RMB)

Mao Yuantou villagers’ committee

Pucheng 11,302 3,997,235

Mao Danggui Pucheng 37,690 9,294,114

Total 48,992 13,291,349

The land lease in connection with the Deed of Fourth Assignment is as follows:

Assignee Consent by Location Area (mu)

Consideration sum (RMB)

Ni Shan Feng Jiangle 80,704 33,943,766

Total 80,704 33,943,766

Glossary

9

Lessor(s) Refer to the lessors defined in the Deed of First Assignment and Deed of Second Assignment.

Lian 练伟雄, Assistant of the village head of Yuantou villagers’ committee.

Lijiashan Nanping Lijiashan Forestry Co., Ltd. (南平市李家山林业有限公司).

Lijiashan is the immediate holding company of Shansheng. Lijiashan is the wholly-owned subsidiary of Yuanwang.

Lin or Lin Weibin 林卫斌, Executive Director and Group Head of Production and Sales of

the Company; Director of Yuanwang; Director and Head of Sales Department of Wangsheng. Yuanwang is the holding company of Lijiashan.

Liu 刘立平, Legal representative (法定代表人) of Lijiashan (appointed

since 31 July 2018) and Shansheng (appointed since 26 July 2018)

Mao 毛信贤, Assignee (individual) of the land lease from Lijiashan. Mao was

also the subcontractor for maintenance and harvesting services for Lijiashan and the contractor for pest control for Lijiashan.

Mu 亩 , a Chinese measuring unit currently equivalent to 666 and 2/3

meters squared

Ni 倪永长, Assignee (individual) of the land lease from Shansheng. Ni was

also the subcontractor for maintenance for Shansheng and the contractor for harvesting services and pest control for Shansheng.

Offsetting of accounts agreement (also known as “offset agreement”)

The offset of the consideration sum(s) due by the assignee(s) under the Disposal Agreement against the amounts owed to the assignees for maintenance, pest control and harvesting services (refer to “Contractor” for the definition of maintenance, pest control and harvesting services) where: In the case of Lijiashan, the Offsetting of accounts agreement dated 23 August 2017 entered into between Lijiashan and Mao providing for aggregate consideration of RMB 13,291,349 pursuant to the Deed of Third Assignment to be offset against the sum of RMB 13,369,504 owed to Mao for maintenance, pest control and harvesting services. In the case of Shansheng, the Offsetting of accounts agreement dated 23 August 2017 entered into between Shansheng and Ni providing for aggregate consideration of RMB 33,943,766 pursuant to the Deed of Fourth Assignment to be offset against the sum of RMB 33,960,160 owed to Ni for maintenance, pest control and harvesting services.

Peng 彭林安, lawyer from 福建皇华律师事务所 for Lijiashan

Plantations The Moso bamboo plantations

PRC People’s Republic of China

Professor 赖日文 , Professor, Faculty of Agriculture, Fujian Agricultural and

Forestry University (福建农林大学)

Glossary

10

Pucheng Pucheng county 浦城县, Fujian Province, PRC

Rex Rex, Zhou Chen, Chief Financial Officer of the Company

SGX Singapore Exchange Limited (“SGX”)

Shan Feng Jiangle Shanfeng Bamboo Co., Ltd. (将乐县山丰竹业有限公司).

Shansheng Sanming Shansheng Forestry Co. Ltd. (三明山盛林业有限公司 ).

Shansheng is the wholly-owned subsidiary of Lijiashan.

Subsidiaries Lijiashan and Shansheng are collectively known as the “Subsidiaries” or “Subsidiaries” of Yuanwang.

Wangsheng Fujian Wangsheng Industrial Co., Ltd. (福建望盛实业有限公司 ).

Previously known as Fuzhou Wangcheng Foods Development Co., Ltd ( 福州旺成食品开发有限公司 ). Wangsheng is a wholly-owned

subsidiary of the Company.

Xiong 熊浦印, former legal representative, chairman and general manager

(法定代表人，董事长兼总经理) of Lijiashan. Appointed for the period from 23 April 2013 to 31 July 2018.

Ye 叶林庆, General manager of Shan Feng

Yuanwang Nanping Yuanwang Foods Co., Ltd. (南平市元旺食品有限公司 ).

Yuanwang is a wholly-owned subsidiary of the Company. Yuanwang is the immediate holding company of Lijiashan.

Yuan Tai Yuan Tai Law Offices (上海源泰律师事务所), PRC legal counsel acting

for FKT

Yuantou village Yuantou village, Shanxia Town, Pucheng county, Fujian Province, PRC

Yuantou villagers’ committee Villagers’ committee of Yuantou village (源头村)

Zhou 周济才, General manager of Danggui

11

9 October 2018

To: The Audit Committee of Yamada Green Resources Limited

1. Executive Summary

1.1 Background

The Board of Yamada Green Resources Limited (the “Company”) announced on 21 August

2018 that Sanming Shansheng Forestry Co., Ltd. (三明山盛林业有限公司) and Nanping

Lijiashan Forestry Co., Ltd (南平市李家山林业有限公司) (collectively the “Subsidiaries”),

both wholly-owned subsidiaries of the Company, had in August 2017 disposed of all their

leases to the Plantations (gross land area measuring approximately 129,696 亩 (mu)) in Jiangle

county and Pucheng county, in Fujian province, People’s Republic of China (“PRC”) (the

“Disposal Transaction”). The disposal was not brought to the Board’s attention previously and

was made without the approval of the Board.

On 27 August 2018, the Board of Directors appointed Foo Kon Tan LLP (“FKT”) to conduct

agreed upon procedures in connection with the Group’s disposal of the Plantations by certain

of its subsidiaries, namely: Shansheng and Lijiashan, which occurred in August 2017 but was

not made known to the Board until August 2018.

We have carried out the agreed upon procedures including interviewing the legal

representatives of the Subsidiaries, namely, Mr. 熊浦印 (“Xiong”) and Mr. 蔡继强 (“Cai”), who

were the then legal representatives of Lijiashan and Shansheng respectively. We also

interviewed Mr. 林卫斌 (“Lin Wei Bin”) who is an executive director and group head of

production and sales of the Company, a director of 南平市元旺食品有限公司 (“Nanping

Yuanwang Foods Co., Ltd.”) (“Yuanwang”) and a director and head of sales department of 福

建望盛实业有限公司 (“Fujian Wangsheng Industrial Co., Ltd.”) (“Wangsheng”). In the course

of our work, we also interviewed other parties (Refer to Section 1.2 interview venue).

The interviews were conducted together with the Company ’ s PRC and Singapore legal

counsels, Allbright and Equity Law, who were appointed by the Board, along with Yuan Tai,

representing FKT. Chen, Rex and Liu also attended the interview while Chua attended the

interviews of Lin, the professor and Jones Lang.

12

1.2 Interview venue

The interviews were carried out at the following venue:

Description Parties Address

Former legal representative, chairman and general

manager ( 法定代表人，董事长兼总经理 ) of

Lijiashan

Xiong 浦城县盛丰路 2 号

Former legal representative, chairman and general

manager ( 法定代表人，董事长兼总经理 ) of

Shansheng

Cai 福建省三明市将乐县古镛镇七

星街先进巷 9 号 501 室

Director of Company, Wangsheng and Yuanwang Lin 闽侯荆溪镇厚屿入园路12号福

建望盛实业有限公司

Professor of Fujian Agricultural and Forestry

University (福建农林大学)

Professor 闽侯荆溪镇厚屿入园路12号福

建望盛实业有限公司

Commissioner (处长) of Fujian Provincial Department

of Forestry (福建省林业厅)

Lai Fujian Provincial Department of

Forestry

(福建省林业厅)

Valuer - Jones Lang George Xiong

Conference call at 闽侯荆溪镇

厚屿入园路12号福建望盛实业

有限公司

Lawyer for Lijiashan Peng 浦城县盛丰路 2 号

Assignee (individual) for the land lease at Shansheng

Ni 福建省三明市将乐县古镛镇七

星街先进巷 9 号 501 室

Assignee (individual) for the land lease at Lijiashan Mao 浦城县盛丰路 2 号

General manager of Shan Feng – lessor to Shansheng Ye 福建省三明市将乐县古镛镇七

星街先进巷 9 号 501 室

General manager of Danggui – Lessor to Lijiashan Zhou 浦城县盛丰路 2 号

Yuantou villagers’ committee – Lessor to Lijiashan Feng 浦城县山下乡源头村村民委员

会

13

1.3 Objectives of the agreed upon procedures

The key objectives are to obtain the relevant facts, circumstances and events leading to the

disposition of the Disposal Transaction and how the reporting and communication were

carried out.

The experts consisting of the valuer, professor and the ministry from the Fujian Provincial

Department of Forestry were to provide us with the understanding of the Plantations in so far

as it relates to the insect infestation and plant diseases as well as the turn of the market for

bamboos since 2016 and the decline in the value of the Plantations.

1.4 Fact-finding observations and conclusion

We completed the scope of work under the agreed upon procedures in our engagement letter dated

27 August 2018 and we set out below our fact-finding observations and conclusions in Sections 1.4.1

to 1.4.10.

1.4.1 Control over legal representatives

Through the Company’s legal counsel,

a. We were unable to verify to the stamp records/register of legal representatives

showing the dates and purposes of the uses of the chop/stamp of the legal

representatives, and were unable to ascertain whether there were sufficient controls

over the custody and security of the legal representative(s) seal/stamp, in particular,

whether the contract execution require the use of the seals. This was because the

stamp records/register of legal representatives had been destroyed in the fire

incident.

b. The then legal representatives, Xiong and Cai, had been replaced by a new legal

representative Mr Liu (刘立平) in July 2018 and Mr Liu discovered the disposal from

the then legal representatives when he took office.

b. The PRC legal counsel of the Company had examined the articles of association of the

Subsidiaries, Lijiashan and Shansheng, and confirmed that under Article 22 of Chapter

14

7 of the Articles of Association of the Subsidiaries and the law in PRC, the then legal

representatives possessed the authority to enter into the Disposal Agreement in the

Disposal Transaction.

15

1.4.2 Rationale of leases of Plantations

We interviewed the relevant parties regarding the policies and procedures on the

maintenance of the Plantations including the professor of forestry to the extent of the

damages and possible treatment.

Director of the Company - Lin

a. Lin reported that every industry had its own risks. He made the decision to

recommend to the Board to lease the Plantations in 2013 as he was optimistic about

its future prospects. In addition, after obtaining the land leases to the Plantations,

Shansheng and Lijiashan were reporting profits from the bamboo operations. At the

time of obtaining the land leases to the Plantations, he did not expect any insect

infestation at the Plantations. There were internal control procedures for the

management of pest control. These include the use of chemical ingredient formula,

weeding, fertilisation and soil loosening to destroy the insect ovum, and the removal

of insect chrysalis. The pest control work was carried out by contractor and/or

subcontractors and supervised by the management.

Professor

b. It was apparent that there were insect pest at the Subsidiaries’ Plantations and the

professor had recommended the scientific procedures to resolve the insect pest and

plant diseases. The Plantations in Jiangle and Pucheng were badly affected by the

unusually dry weather conditions with low rainfalls recorded in 2016 in these regions.

His investigation and analysis in his report dated 28 April 2017 showed that the

Plantations in Jiangle and Pucheng were also affected by plant diseases and insect

pest such as Pantanaphyllostachysae (刚竹毒蛾), pest mites (害螨) and Ceracris

kiangsu (黄脊竹蝗). He was of the view that a combination of factors, such as poor

soil conditions, insufficient maintenance and incorrect cultivation methods, and the

plant diseases and insect infestation had led to serious damages to the Plantations.

As a result of his analysis, the professor estimated that the productivity and yield of

the Plantations may have reduced by at least 30 percent due to the dry weather

conditions and the insect infestation problems. The professor recommended several

measures to minimize the loss from plant disease and insect pest such as (a) improving

16

soil fertility, (b) curing the insect infestation areas with the use of chemicals, (c)

weeding to loosen soil to inhibit the growth of weeds and (d) implementing proper

cultivation measures including the use of biological natural inhabitants to combat the

growth of plant disease and insect pest.

c. The professor had confirmed that he had visited the Subsidiaries’ Plantations in early

April 2017. This was corroborated by Xiong and Cai who had confirmed that the

professor had visited the Plantations during that period to investigate into the

seriousness of the insect infestation and plant diseases.

1.4.3 Process of the Disposal Transaction

a. We interviewed the past legal representative(s) and directors of the Subsidiaries on

the authorisation process for the Disposal Transaction and amongst others:

• The economics and commercial reasoning for the Disposal Transaction,

including a market research to the forestry industry economics, and consider

the chronology of the Disposal Transaction; and

• The basis for the sale consideration, whether an independent valuation was

used and to obtain a copy of the independent valuation report on the Disposal

Transaction, and the manner of settlement, whether gross or net. If net, the

rationale in arriving at the netting arrangement and whether there exists a

legal right of offset. In this regard, we have also interviewed the Plantation

contractors and/or subcontractors and the valuer.

b. At the meeting, it was represented that the Plantations require high (However FKT is

unable to comment on whether it is high or low) maintenance including pest control

of more than RMB 40 million in the case of Shansheng and that the sustainability of

the bamboo operations was affected by the poor economic conditions for the

bamboo business and the low bamboo productivity.

c. Whether there existed related party relationships, if any, in respect of the Disposal

Transaction and the manner to which how the process of authorisation and disclosure

had been carried out to identify the related party relationships, it was represented

throughout the meetings that there were no related party relationships and/or

transactions and balances.

17

d. We enquired the process by which the legal representative(s) communicated the

Disposal Transaction to the directors of the Subsidiaries and noted that the

communications were mainly verbal as to the approval procedures until the signing

of the Disposal Agreement on the disposition of the Disposal Transaction. During the

process, there was an internal report on the Disposal Transaction which was

submitted by the legal representative, Xiong, to Lin, the director of Yuanwang. To the

extent the Disposal Transaction was reported to the Board, it was only restricted to

the legal representatives reporting to Lin, the director of the Yuanwang.

e. We reviewed the original Disposal Agreements provided to us by the assignees. The

PRC legal counsel of the Company had reviewed the authenticity of the Disposal

Agreements. The date of the Disposal Agreements and completion of the Disposal

Transaction was on 23 August 2017 which was confirmed by the assignees, Mao and

Ni. On whether the disposal was made known to the Board, the legal representatives

confirmed that his reporting process was limited to the immediate holding company,

Yuanwang. As to the existence of the guarantees, warranties and commitments, the

assignees confirmed that there were none.

f. At the meeting, it was confirmed by the assignees that no other assets were included

in the Disposal Transaction. The PRC legal counsel of the Company confirmed that the

terms of the Disposal Agreement were crafted on the basis of the land lease

arrangement entered into between the lessors and the Subsidiaries.

g. We checked the identification of the leases/parcels of land that constitute gross land

area measuring approximately 129,696 mu. We agreed the leased areas to the

Disposal Agreements under the Deed of First Assignment and Deed of Second

Assignment.

h. The legal representatives confirmed to us that there was no tendering process though

they had obtained offers from several third parties. For Lijiashan, there were offers

from three parties; two of which offered a few million yuan and only Mao offered

RMB 10 million. The agreed price after negotiation was RMB 13.29 million. For

Shansheng, there were several offers. The third parties who were interested in the

land lease of Shansheng were 恒盛达公司的周总 and 谢总, and there was also an

offer from 叶总 who was holding a position in the village. Their offers ranged between

RMB 20 million to RMB 30 million.

18

i. We reviewed whether the consideration sum for the Disposal Transaction, included

any cash involved, or money being escrowed or banked directly to the bank account:

• The consideration sum for the Disposal Transaction was offset against the

amounts owed to the assignees who were also the contractor and/or

subcontractors for maintenance, pest control and harvesting services for the

Subsidiaries. According to the Offsetting of accounts agreement, the

settlement of the consideration sum was purely by way of offsetting of

accounts due to the fact that there were amounts owed to the assignees for

maintenance, pest control and harvesting services. The net amount after the

offsetting was paid in cash. In the case of Lijiashan, the net amount paid to

Mao was approximately RMB 70,000. In the case of Shansheng, the net

amount paid to Ni was more than RMB 10,000. The table below summarises

the information on the consideration sum which was offset against amounts

owed to the assignees who were also the contractors and/or subcontractors

for maintenance, pest control and harvesting services:

Lijiashan Shansheng

Offsetting of consideration sums RMB' million RMB' million

Maintenance 5.77 13.11

Pest control 5.19 12.84

Harvesting services 2.4 8.01

Amounts due to contractor and/or subcontractor

13.36

33.96

Consideration sums 13.29 33.94

Net amount due to assignees after offset 0.07 0.02

• There were no escrow accounts as the settlement of the consideration sum

was based on the Offsetting of accounts agreement. The PRC legal counsel of

the Company had reviewed and confirmed that the Disposal Agreements

under the Deed of Third Assignment and Deed of Fourth Assignment and the

Offsetting of accounts agreements were valid and were legally enforceable

given that there were also amounts owed to the assignees who were also the

contractor and/or subcontractors for the Subsidiaries’ Plantations.

19

Legal representatives

j. The legal representative of Lijiashan, Xiong, reported the Disposal Transaction of

Lijiashan and Shansheng (executed and completed on 23 August 2017) by way of an

internal report on the Disposal Transaction on 25 August 2017 to Lin, the director of

Yuanwang. Yuanwang is the immediate holding company of the Subsidiaries

(Lijiashan and Shansheng). Xiong relied on the valuation report for the sale

consideration in the Disposal Transaction.

k. The independent valuer, Jones Lang LaSalle Corporate Appraisal and Advisory Limited

(仲量联行企业评估及咨询有限公司) (“Jones Lang LaSalle”), confirmed that the

valuation was prepared for the purpose of the annual audit and not for the Disposal

Transaction. The valuation amount, valuation date and valuation basis for the moso

bamboo plantations in the valuation report by Jones Lang LaSalle, that was

commissioned for audit purposes were as follows:

Plantation

area (mu)

Valuation

amount (RMB)

Valuation date Valuation basis

Lijiashan 48,992 13,291,349 30 June 2017 Income approach

Shansheng 80,704 33,943,766 30 June 2017 Income approach

The valuer took into account the “projected harvest and market prices of the bamboo

trees and bamboo shoots, and the conditions of the biological assets as to its growth

cycle” in its valuation approach.

l. The legal representative of Shansheng, Cai, reported the Disposal Transaction of

Shansheng to Xiong. Cai received the valuation report on the Plantations of Shansheng

from Lijiashan and relied on it in determining the consideration sum in the Disposal

Transaction of Shansheng. He had obtained the draft Disposal Agreement from Xiong

for the Disposal Transaction.

m. The legal representatives, Xiong and Cai, were responsible for managing the

Plantations including the pest control at the Plantations in accordance with the

internal control procedures adopted by the Subsidiaries.

n. They had reported in writing to Lin on the severity of the insect infestation and

discussed with Lin whether, (i) to suspend the Plantations operations, or (ii) to dispose

of the Plantations, or (iii) obtain instructions from superior on the direction.

Consequently, Lin gave his written approval by fax to Xiong with full authority to

decide on the disposition of the Plantations.

20

o. There was a Disposal Agreement for the Disposal Transaction. The PRC legal counsel

of the Company had confirmed that the Disposal Agreements including the Offsetting

of accounts agreements were valid and were legally enforceable though the Disposal

Agreement was not drafted by a legal firm. The Disposal Agreements were

acknowledged by the lessors when the land leases to the Plantations were transferred

to the assignees.

p. The legal representative, Xiong, prepared and submitted his internal report on the

Disposal Transaction on 25 August 2017 to Lin. We understand that Xiong had placed

the internal report on Lin’s office desk when Lin was not in his office at that point of

time.

q. Xiong reported that his request for the course of action on the disposition of the

Plantations to Lin was made on 17 August 2017 and he received Lin’s approval on 18

August 2017.

r. Cai had reported that he understood from Xiong that the approval from Lin was

granted on 17 August 2017 where he commenced the search for interested parties to

transfer the land lease on 18 August 2017.

Director of the Company and immediate holding company of the Subsidiaries,

Yuanwang

s. Lin had given his written approval by fax to Xiong with full authority to decide on the

disposition of the Plantations when, the legal representative, Xiong, had sought his

view on the course of action as to whether (i) to suspend the Plantation operations,

or (ii) to dispose of the Plantations, or (iii) to obtain instructions from superior on the

direction. Xiong previously informed Lin about the severity of the insect infestation

and plant diseases, and the damages it had caused to the Subsidiaries’ Plantations.

t. By his own admission, Lin claimed that he was busy with attending to the auditing

matters by the then auditors, BDO, in August 2017 and he also had personal family

problems to manage at that time. Although he was not aware that the internal report

on the Disposal Transaction which Xiong said he placed on Lin’s desk in Lin’s absence

on 25 August 2017, Lin had omitted to follow up on Xiong’s earlier report on 17 August

2017. He admitted that there was a neglect of fiduciary duties of himself as a director,

namely, he did not realise that his response (全权处理 or full authority to decide on

the disposition of the Plantations) given to the legal representative, Xiong, would lead

21

to the Disposal Transaction. Had he been aware of the Disposal Transaction, he would

have reported the matter to the Board.

u. In addition, Lin admitted that there was some misunderstanding in communications

between Lin and the legal representatives i.e. had the Plantations been disposed of,

he would have expected the legal representatives to report the matter to him again

upon finding suitable buyers for his approval of the disposal but they did not. This was

the reason why he did not report the Disposal Transaction to the Board.

v. As a key member of the management of the Company, Lin did not make any reporting

to the Board. The failure to report to the Board was due to his omission and

apparently neglecting his management responsibility.

w. Subsequently, on 19 August 2018, the new legal representative, Mr Liu (刘立平),

informed Mr Chen and the CFO Mr Rex Zhou, who then reported the Disposal

Transaction to the Board.

x. In so far as internal control on reporting and communication is concerned, FKT

interviewed Xiong and understand that from Xiong’s perspective, so long as he

reported to Lin on the Disposal Transaction, he had complied with the internal control.

FKT further observed that there was only unilaterally communication made by Xiong

to Lin where the authorization for the Disposal Transaction is concerned. There was

also a lapse in the reporting where Yuanwang is concerned for Lijiashan to make

known the Disposal Transaction to its immediate holding company. Furthermore, Lin

also failed to follow up on the reporting by Xiong. No approval of the Disposal

Transaction was obtained from the Board and shareholders of the Company.

Process by which the legal representative(s) communicate the Disposal Transaction

to the director of Yuanwang, the immediate holding company of the Subsidiaries, and

whether it reflected the reporting channel for normal and/or significant transactions

including Disposal Transaction

y. The consideration sums for the Disposal Transaction of Lijiashan and Shansheng were

RMB 13,291,349 and RMB 33,943,766 respectively. Both transactions were regarded

as significant as they were the core assets of the Subsidiaries and these assets were

reflected as prepayments and biological assets in the annual report of the Company

in FY2016.

22

z. In so far as the Disposal Transaction was concerned the legal representatives, Xiong

and Cai, reported that they had submitted their management accounts to the holding

company, Wangsheng on a monthly basis. Regarding the July/August 2017

management accounts, the accounts were updated to record and recognise the

disposition of the Disposal Transaction. In order to facilitate the subsequent follow up

audit work by BDO, the relevant books and records up to August 2017, though not

closed, were submitted to Wangsheng’s office at 闽侯县荆溪镇厚屿村食品工业园

on 28 August 2017. The accountant of Lijiashan, 黄祖萍 , represented that the

accounting software was linked to Wangsheng’s office via a server. When the file

servers were destroyed due to the fire incident, she could not access to any data from

the server as to their records.

23

Existence, validity and reasonableness of the payables and payments

aa. As mentioned in the aforesaid paragraph, when the July/August 2017 accounting

records were submitted to the head office and the inability to access them, we were

not provided with any documents or evidence to support the payables and payments

made. We were informed by Xiong and Cai that the full settlement with the assignees

was made in August 2017.

bb. The PRC legal counsel of the Company had examined the Deed of Third Assignment

and Deed of Fourth Assignment together with the Offsetting of accounts agreement

and have confirmed the validity and enforceability of these contracts. On this basis,

the payables and payments in so far as it relates to the Disposal Transactions were

confirmed to be in order from the legal perspectives.

1.4.4 Independent valuer

a. The valuation of the Subsidiaries’ Plantations was used solely for financial reporting

purposes for the audit of the financial statements of the Company and its subsidiaries

and were shown as biological assets in the FY2016 annual report of the Company and

for the purpose of this due diligence. The valuer confirmed that the valuation was not

prepared for the Disposal Transaction. We have requested the working papers of the

valuer to show that the work was performed prior to the date of the Disposal

Transaction. Based on the email correspondences provided by Rex which he obtained

from the valuer, it was shown that there were communications between the valuer

and BDO as early as 10 August 2017. The valuation reports for the Plantations for the

year ended 30 June 2017 were dated on 21 August 2017.

b. We have reviewed the valuation reports on the Plantations by the valuer of the

Subsidiaries the basis of the calculations of which included the projected harvest and

market prices of the bamboo trees and bamboo shoots, and the conditions of the

biological assets as to its growth cycle. The valuer also had a team of agricultural

experts who assisted them in the valuation exercise which had considered the risk

from the plant disease and insect pest control measures.

24

1.4.5 Ministry from the Fujian Provincial Department of Forestry

a. The market value of the Plantations had declined due in part to governmental

environmental control measures by the Ministry of Ecology and Environment of the

PRC.

b. According to the Company’s searches, the prices for bamboos had fallen from

approximately RMB 800 per ton in year 2015/2016 to approximately RMB 400 per ton

in year 2017/2018.

1.4.6 Internal reporting to the Board by Chen and Rex

a. We found the information in the internal reporting to the Board by Chen and Rex to

be consistent with our fact-finding and observations.

1.4.7. The facts surrounding the Disposal Transaction

The facts surrounding the Disposal Transaction by reviewing email correspondences in

relation to the Disposal Transaction, including Lin Weibin’s correspondences with Xiong and

Cai involved in the Disposal Transaction as well as reports submitted in relation to the disposal.

a. To the best of Lin’s belief, all communications were made verbally; there were no

email transmissions. The only written document made known in the meeting between

Lin and Xiong was the written internal report of the Disposal Transaction. Lin reported

that there was only one fax transmission from Lin to Xiong for his approval to Xiong

on the disposition of the Plantations. Management represented that the internal

report on the Disposal Transaction and the fax transmission copy were destroyed in

the fire incident.

1.4.8. Whether the Plantation had encumbrances when it was disposed. If so, to ascertain the

circumstances under which the encumbrances were created and for whose benefits.

a. The assignees of the Plantations, Mao (Lijiashan) and Ni (Shansheng) had confirmed

that the Plantations did not have any encumbrances when they were disposed of by

25

the Subsidiaries. We checked to the Disposal Agreements and the PRC legal counsel

of the Company had confirmed that there were no encumbrances.

1.4.9. Interview with the Plantations’ contractor and/or subcontractor

a. There were internal control procedures on the maintenance of Plantations for the

Subsidiaries. According to Xiong and Cai, the internal control procedures were

observed as to the process of the maintenance and pest control services. We

interviewed the assignees of Lijiashan (Mao) and Shansheng (Ni) who were also the

contractors and/or subcontractors for maintenance, pest control and harvesting

services. Mao and Ni confirmed that they complied with the instructions given by the

management of the Subsidiaries, but they would not be responsible for the outcome

of the maintenance nor the effectiveness of pest control. The management of the

Subsidiaries confirmed that they did carry out sample checks on the contractors

and/or subcontractors to ensure they comply with the requirements laid out in the

maintenance contract and the pest control contract. Mao and Ni reported that for

the maintenance and the pest control work, they engaged experienced farmers in the

Plantations. The records for maintenance and pest control were destroyed in the fire

incident.

26

1.4.10. Interview with the assignees

a. The assignees, Mao and Ni, who were also the Plantations’ contractors and/or

subcontractors confirmed that they obtained the transfer of the land leases to the

Plantations from Xiong and Cai respectively and agreed that the liability owing to them

by the Subsidiaries are to be paid to them by the Subsidiaries by way of offsetting of

accounts. They also confirmed that there were no guarantees, warranties or

commitments in the Disposal Transaction. There were no encumbrances that were

created when they acquired the Plantations. There were no claims or disputes with

the assignees arising from the Disposal Transaction.

b. It was noted that the assignees, Mao and Ni, transferred most of the land leases to

the farmers within 6 months after acquiring the land leases from Lijiashan and

Shansheng respectively. Mao and Ni retained about 500 mu of the land lease each for

their own purpose. The assignees represented that the reason for the transfer of the

land leases to the farmers was due to low productivity from insect infestation and a

decline in bamboo prices coupled with the decline in the market demand for bamboos

and the negative impact from the strict environmental requirements. In addition, they

represented that they also owed the farmers for the maintenance, pest control and

harvesting services, and such amounts were offset when they transferred the land

lease to the farmers. The assignees represented that the amounts owed to the

farmers were because they engaged the farmers to carry out the maintenance, pest

control and harvesting services in their own personal capacity when they were the

contractors and/or subcontractors for Lijiashan and Shansheng.

27

2. Scope of Work

Our fact-findings and observations from the agreed upon procedures are enclosed in the

following appendices:

Appendices Description

Appendix A Interview with the legal representative of Lijiashan, Xiong

Appendix B Interview with the legal representative of Shansheng, Cai

Appendix C Interview with director of the Company and Yuanwang, Lin

Appendix D Interview with professor from the Fujian Agricultural and Forestry University

Appendix E Interview with Ministry from the Fujian Provincial Department of Forestry

Appendix F Interview with independent valuer, Jones Lang

Appendix G Interview with assignee of Lijiashan’s Plantations, Mao

Appendix H Interview with assignee of Shansheng’s Plantations, Ni

Appendix I Interview with Danggui

Appendix J Interview with Yuantou villagers’ committee

Appendix K Interview with Shan Feng

Appendix L Interview with Peng

Yours faithfully,

For and on behalf of Foo Kon Tan LLP

Appendix A

1

Interview with the legal representative of Lijiashan, Xiong

Interviewee: Xiong

Venue: 浦城县盛丰路 2 号

Objective: (A) Control over legal representative(s)

(B) Rationale of leases of Plantation

(C) Process of the Disposal Transaction

Xiong was the legal representative, Chairman and General Manager of Lijiashan.

Shansheng is a wholly-owned subsidiary of Lijiashan. The accountant of Lijiashan, 黄祖萍, was present

at the interview.

Below is the information obtained from the interview. Xiong has confirmed to us before the parties

namely: FKT, Allbright, Equity Law and Yuan Tai the following matters to the best of his belief:

A. Commencement of lease

i. In April 2013, Lijiashan signed a Deed of First Assignment (Part 1) of 11,302 mu with Yuantou

villagers’ committee. Xiong was introduced to Yuantou villagers’ committee by Mao. In 2014,

as the legal representative, Xiong signed a Deed of First Assignment (Part 2 and Part 3) of

22,543 mu and 15,147 mu respectively. In total, the land lease areas acquired by Lijiashan

were 48,992 mu. Xiong represented that the consideration sums for the land lease were

agreed according to valuation reports (评估报告) and feasibility study reports (可行性报告).

ii. As required by Lijiashan’s internal control procedures, Xiong had informed the director of

Yuanwang, which is the immediate holding company of Lijiashan, Lin Wei Bin, of the land lease

acquisitions and he believed that Lin would have informed the Board. He believed that the

Board would have also made the necessary announcements on the acquisition of the land

lease to the Plantations.

iii. Xiong represented that there were internal control procedures (管理制度) over the financial

and risk management of Lijiashan, pest control and maintenance.

Appendix A

2

B. Circumstances and rationale leading to the Disposal Transaction

i. Initially when insect pest was discovered, they were not considered severe.

ii. Owing to poor market outlook for bamboos, high labour cost, insect infestation problems and

outstanding maintenance fees and other amounts owing to the contractor and/or

subcontractor, there was a business case for urgent action to be taken whether to continue

operating the Plantations business which were incurring losses.

iii. There were demands for payment made by the contractor and/or subcontractor for

outstanding maintenance fees and other fees owed to Mao. There were similar problems

noted at Shansheng.

iv. The legal representatives of Lijiashan and Shansheng arranged to discuss the matters with a

view to finding a solution.

v. The professor from the Fujian Agricultural and Forestry University was also called to the

Plantations at Lijiashan in April 2017.

vi. The Disposal Agreement was prepared by Lijiashan and it was reviewed by a lawyer, Peng,

from 福建皇华律师事务所 for consistency with local laws and regulations on an informal

basis without any legal fees being incurred. The legal counsel was referred to Xiong through a

friend of his.

vii. Xiong initiated discussions with three interested parties, two of which offered a few million

yuan and only Mao offered RMB 10 million in June/July 2017. Xiong believed the price was

too low. Mao was a farmer and had been in the bamboo shoots business for some time. He

sold bamboo shoots to Yuanwang previously.

viii. The agreed price after negotiation was set at approximately RMB 13 million which was based

on the professional valuation from Jones Lang. The accountant of Lijiashan, 黄祖萍 ,

represented that the valuation report was obtained from Wangsheng’s office.

Appendix A

3

C. The entering of the Disposal Agreement and Offsetting of accounts agreement

i. Xiong represented that Lin had given him the full authority (全权处理 or full authority to

decide on the disposition of the Plantations) to manage the Plantations on 18 August 2017

and to do what was in the interest of the Company (以公司利益最大化为原则).

ii. Xiong believed it was not necessary to communicate the agreed consideration sum of RMB

13.29 million and the execution of the Disposal Agreement to Lin as Lin already authorised

him to decide on the disposition of the Plantations. In addition, Xiong believed he had the

right to dispose the Plantations which was in accordance with his right as a legal

representative, and that he complied with the internal control procedures of Lijiashan. Under

the reporting and authorization protocol of the Group, Xiong’s and Lijiashan’s channel is

through Mr Lin and Lijiashan’s immediate holding company Yuanwang respectively.

iii. The Deed of Third Assignment to transfer the land lease to Mao was executed on 23 August

2017. According to their internal control procedures, the Disposal Agreement under the Deed

of Third Assignment was kept by the finance department. Xiong represented that he did not

have the original copy of the Disposal Agreement as it had been submitted to Wangsheng for

audit purpose on 27 August 2017. A copy of the Disposal Agreement was obtained from the

assignee, Mao, in August 2018.

iv. Following the disposal, Xiong represented that he had prepared an internal report on the

Disposal Transaction and had placed it on Lin’s desk when Lin was not in the office on 25

August 2017. He further represented that other than the internal report, there were no other

documents such as the Disposal Agreement that was given to Lin. The internal report was kept

at Lijiashan’s finance department.

v. It was the finance department who keyed the internal report on the Disposal Transaction in

their computer. The file servers at Wangsheng were destroyed during the fire incident. No

other soft copy could be retrieved.

vi. In addition to the Disposal Agreement, the Offsetting of accounts agreement was also signed.

This was because there were amounts owed to the assignee, Mao, and therefore offsetting of

accounts was considered. Mao was also the subcontractor for maintenance and harvesting

services and the contractor for pest control for Lijiashan.

Appendix A

4

vii. The Offsetting of accounts agreement was signed on 23 August 2017 which was the same day

as the Disposal Agreement. Xiong represented that he had discussed and obtained the

agreement of the lessors, Danggui and Yuantou villagers’ committee, to transfer the land lease

to Mao. The representatives of Danggui and Yuantou villagers’ committee were present on

the same day to affix their company seals on the Disposal Agreement.

viii. As Lijiashan had already made payment for the 10-year land lease period out of a total land

lease period of 15 years in 2013 on its land lease with Yuantou villagers’ committee, the

assignee, Mao, would only be responsible for the remaining five years of the land lease as

stated in the Deed of Third Assignment. After the offsetting of accounts, there was still a net

amount of approximately RMB 70,000 owing to Mao. This was settled in cash on the same day

the contracts were signed at Lijiashan’s premises. The cash was obtained by Lijiashan from the

collections from bamboo shoots sales.

ix. Xiong believed it was not necessary to obtain Lin’s approval for the Offsetting of accounts

agreement as Lin had already given approval for him to deal with the Plantations. Lijiashan

owed a total of RMB 13.36 million to Mao as a contractor and/or subcontractor. The amounts

owed consisted of the cost of maintenance, pest control and harvesting services for the period

from May 2016 to August 2017.

x. The table below summarises the consideration sum which was offset against amounts owed

to Mao. The net amount due to Mao was settled in cash on 23 August 2017 by Lijiashan.

Offsetting of consideration sum RMB' million

Maintenance 5.77

Pest control 5.19

Harvesting services 2.4

Amounts due to contractor and/or subcontractor 13.36

Consideration sum 13.29

Net amount due to assignee after offset 0.07

xi. Xiong confirmed that Lijiashan became dormant following the Disposal Transaction.

Appendix A

5

D. Controls over company seal

Xiong made the following statements:

i. There was a record for the use of the company seal indicating the time and purpose for using

the company seal.

ii. Xiong kept the company seal and the legal representative seal with him.

iii. The legal representative seal was not required for contract signing.

The accountant of Lijiashan, 黄祖萍, made the following statements:

i. There was no finance seal; they used the invoice seal instead.

ii. The invoice seal was kept by the finance department.

E. Communication with the Board

i. The accountant at Lijiashan represented that the management accounts of Lijiashan were

submitted to Wangsheng on a monthly basis via Wangsheng’s computer server (精算盘).

ii. The accounting entries relating to the Disposal Transaction had also been recorded and

recognised in the accounting records up to 27 August 2017 and all books and records had been

delivered to the new office, 闽侯县荆溪镇厚屿村食品工业园 of Wangsheng on 28 August

2017.

iii. The accounting software including the accounting entries for the Disposal Transaction had

been updated and recorded onto the accounting system (精算盘) and the file servers (服务

器) of Wangsheng up to 27 August 2017.

iv. The accountant of Lijiashan, 黄祖萍, represented that after Wangsheng submitted all the

hardcopy of the accounting records (which also contained the accounting records of Lijiashan)

together with the computers from the new office to the existing office (at 福州市闽侯县甘

蔗街道闽侯经济技术开发区东岭路 2 号) on 30 August 2017, their books and records had

been destroyed by the fire incident. Following the fire incident, which also destroyed the file

servers maintained by Wangsheng, she claimed that she could not register onto or have access

to the accounting system of Wangsheng.

Appendix A

6

v. After the fire incident, the accounting records of Lijiashan were prepared by Wangsheng from

that time onwards. 黄祖萍 further represented that as Xiong already reported the Disposal

Transaction to Lin, they thought that Wangsheng was aware of the disposal of the Plantations.

黄祖萍 confirmed that only their accounting records were delivered to Wangsheng’s new

office. The computer of Lijiashan remained in their office. However, she represented that after

their computer underwent a tax software upgrade (税控), they could not recover the internal

report on the Disposal Transaction that was submitted by Xiong to Lin on 25 August 2017.

vi. Xiong represented that he had complied with the internal control procedures of Lijiashan as

Lin had given his approval (全权处理 or full authority to decide on the disposition of the

Plantations) to him on the disposition of the Plantations on 18 August 2017. He had also given

the internal report on the Disposal Transaction to Lin on Lin’s desk on 25 August 2017. He

cited that he had the right to approve the Disposal Agreement. He also had the power to sign

the Disposal Agreement under the Articles of Association of Lijiashan.

vii. Xiong did not discuss the Disposal Transaction with Lin or with anyone else in the Group after

the disposal. Xiong represented that he also did not communicate the Disposal Transaction

with Wangsheng or with the Executive Chairman and Chief Executive Officer of the Company,

Chen, since the Disposal Transaction in August 2017.

Fact-finding observations

(Arising from interviews with the legal representatives, Xiong and Cai (refer to Appendix B)

1. We were unable to verify to the stamp records/register of legal representatives showing the

dates and purposes of the uses of the chop/stamp of the legal representatives; and were

unable to ascertain whether there were sufficient controls over the custody and security of

the legal representative(s) seal/stamp, in particular, whether the contract execution require

the use of the seals. This was because the stamp records/register of legal representatives were

destroyed in the fire incident.

2. The then legal representatives, Xiong and Cai, had been replaced by a new legal representative,

Mr Liu (刘立平 ) in July 2018 and Mr Liu discovered the disposal from the then legal

representatives when he took office.

3. No related party relationships and/or transactions and balances had been identified

throughout the interviews.

Appendix A

7

4. We enquired the process by which the legal representative(s) communicate the Disposal

Transaction to the directors of the Subsidiaries and noted that the communications were

mainly verbal as to the approval procedures until the signing of the Disposal Agreement under

the Deed of Third Assignment and Deed of Fourth Assignment on the disposition of the

Disposal Transaction. During the process, there was an internal report on the Disposal

Transaction which was submitted by the legal representative to Lin, the director of Yuanwang.

On whether the Disposal Transaction was reported to the Board, Xiong confirmed that he was

only required to and did report the Disposal Transaction to Lin, the director of Yuanwang.

5. Whether the date of the transaction was made known to the Board, the legal representatives

confirmed that the process was limited to the immediate holding company, Yuanwang.

6. The legal representatives had confirmed to us that there was no tendering process though

they had obtained offers from several interested parties.

7. According to the Offsetting of accounts agreement, the settlement of the consideration sum

was purely by way of offsetting of accounts due to the fact that there were amounts owed to

the assignees for maintenance, pest control and harvesting services. The net amount after the

offsetting was paid in cash. In the case of Lijiashan, the net amount paid to Mao was

approximately RMB 70,000.

8. There were no escrow accounts as the settlement was largely executed by way of the

Offsetting of accounts agreements.

9. The legal representative of Lijiashan, Xiong, reported the Disposal Transaction of Lijiashan and

Shansheng (executed on 23 August 2017) by way of an internal report on 25 August 2017 to

Lin in his absence.

10. The legal representatives, Xiong and Cai, were responsible for managing the Plantations

including pest control at the Plantations in accordance with the internal control procedures

adopted by the Subsidiaries.

11. They had reported to Lin on the severity of the insect infestation and discussed with Lin

whether, (i) to suspend the Plantations operations, or (ii) to dispose of the Plantations, or (iii)

obtain instructions from superior on the direction. Consequently, Lin gave his approval to

Xiong with full authority to decide on the disposition of the Plantations.

Appendix A

8

12. The Disposal Agreements were acknowledged by the lessors when the leases to the

Plantations were transferred to the assignees.

13. The legal representative, Xiong, prepared and submitted his internal report on the Disposal

Transaction on 25 August 2017 to Lin, in his absence.

14. Regarding the July/August 2017 management accounts, the accounts were updated to record

and to recognise the disposition of the Disposal Transaction.

15. Xiong reported that his request for the course of action on the disposition of the Plantations

to Lin was made on 17 August 2017 to which Lin replied with a fax written instruction

indicating “全权处理 (or full authority to decide on the disposition of the Plantations), 以公

司利益最大化为原则 (or what was in the interest of the Company)” which was received by

Xiong on 18 August 2017.

16. Cai had reported that he was aware that the approval from Lin was granted on 17 August 2017

where he commenced the search for interested parties to transfer the land lease on 18 August

2017.

Appendix B

1

Interview with the legal representative of Shansheng, Cai

Interviewee: Cai

Venue: 福建省三明市将乐县古镛镇七星街先进巷 9 号 501 室

Objective: (A) Control over legal representative(s)

(B) Rationale of leases of Plantations

(C) Process of the Disposal Transaction

Xiong was the legal representative, Chairman and General Manager of Lijiashan.

Shansheng is a wholly-owned subsidiary of Lijiashan. Yuanwang is the holding company of Lijiashan. The

legal representative of Shansheng was Cai.

Shan Feng was the lessor who had leased the Plantations to Shansheng.

Below is the information obtained from the interview. Mr. Cai has confirmed to us before the parties

namely: FKT, Allbright, Equity Law and Yuan Tai the following to the best of his belief:

A. Commencement of lease

i. At the meeting, both original copies of the Deed of Second Assignment (Part 1 and Part 2) were

not available for inspection. However, details of the transfer of the land lease could be found in

the announcements made on the SGX by the Company then.

ii. Wang expressed interest in the Plantations business to representatives from Shan Feng. The Deed

of Second Assignment (Part 1) was signed by 王长荣 (“Wang”), who was the then legal

representative and general manager of Shansheng in 2014.

iii. According to Cai, ShanSheng reported accumulated profits of RMB 22 million up to FY 2016.

Appendix B

2

iv. With Xiong’s approval, a second Plantation land lease was entered by Shansheng. Compared to

the first land lease, the consideration sum was lower. However, the business climate for bamboo

business had declined further due to a fall in the prices for bamboos and the imposition of

environmental regulations.

B. Process of the Disposal Transaction

i. In 2016, there was an unusual winter frost where the bamboo produce saw a huge decline

coupled with the insect infestation which Shansheng faced difficulties to contain the plant disease.

ii. The problems of the Plantations were brought to Xiong’s attention for cause of action to be taken.

Given the full authority from Lin to decide on the disposition of the Plantations, Xiong and Cai

assessed the conditions of the existing problems to the extent of whether the business remained

viable. Both understood that they were faced with strict environmental requirements from the

Ministry of Ecology and Environment (中华人民共和国生态环境部) of the PRC. In addition, there

were reported financial difficulties from companies within the Jiangle county. The option to the

disposition of the Plantations was considered as an alternative to cut losses. There were several

discussions held between Cai and Xiong as to the possible disposition.

iii. On 18 August 2017, Cai commenced the search for interested parties after the approval from Lin

was obtained on 17 August 2017. Only orally communication was made between Cai and Xiong

as to the search for interested parties. There were in total about three or four interested parties

who expressed interest. Amongst them were 恒盛达公司的周总, 谢总 and 叶总who was holding

a position in the village. There were proposals for the transfer of the land lease with offer prices

between RMB 20 million to RMB 30 million. The latest interest was expressed from Ni, who had a

prior business relationship with Shansheng. The initial offer from Ni was RMB 30 million, which

was close to the then market price. But there was counter offer to the sum of RMB 40 million

from Cai according to the professional valuation which Cai obtained from Xiong then.

Appendix B

3

iv. Cai represented that Ni was not a party related to Shansheng or its employees.

v. A Disposal Agreement was prepared by Xiong where the drafting was reviewed by a lawyer known

to Xiong. On 20 August 2017, Cai obtained the Disposal Agreement from Xiong for discussion with

Ni. However, the consideration sum was not stated. The consideration sum was agreed using the

pricing available from the professional valuation. Cai received the valuation report on

Shansheng’s Plantations from the finance department of Lijiashan on 21 August 2017. The land

lease of the Plantations had a remaining lease period of 7 years.

vi. At the Shan Feng office, the Deed of Fourth Assignment was signed by the three parties, namely,

Shansheng, Ni and Shan Feng on 23 August 2017. Together with the Disposal Agreement under

the Deed of Fourth Assignment, there was also the Offsetting of accounts agreement signed on

the same date. This was because, there were amounts owed by Shansheng to Ni, as contractors

and/or subcontractors for maintenance, pest control and harvesting services for Shansheng. The

Offsetting of accounts agreement was signed on 23 August 2017.

vii. The net effect was an amount owing to Ni to the sum of approximately RMB 10,000, which was

paid by Shansheng to Ni in cash on 23 August 2017. A summary of the consideration sum which

was offset against amounts owed to Ni which was settled in cash on 23 August 2017 is tabulated

below:

Offsetting of consideration sum RMB' million

Maintenance 13.11

Pest control 12.84

Harvesting services 8.01

Amounts due to contractor and/or subcontractor 33.96

Consideration sum 33.94

Net amount due to assignee after offset 0.02

Appendix B

4

viii. There was no amount owing to/from Ni by Shansheng after the settlement of the Disposal

Transaction. There were no transactions entered since then.

ix. The Offsetting of accounts agreement and the Disposal Agreement could not be found when the

original copies were submitted to Wangsheng office for audit purpose, believed to be destroyed

by the fire incident. Original copies of the Deed of Fourth Assignment and the Offsetting of

accounts agreement were obtained from Ni.

x. Regarding Shan Feng who acted as the original contractor for maintenance for Shansheng, they

transferred the contracts for maintenance and harvesting services with the consent of Shansheng

from Shan Feng to Ni as the subcontractor. For the pest control, the contract was between

Shansheng and Ni around that time.

xi. At the meeting, the maintenance contract with Shan Feng cannot be made available. Shan Feng

also did not have a copy either. The terms amongst others include an amount of RMB 275 per mu

payable over a two-month period for maintenance work which was carried out once in a year

under the supervision of Shansheng. Shansheng settled the maintenance amounts owing annually.

However, the maintenance charges for FY2017 remained unpaid. Xiong had been kept informed

about the delayed payment. The estimated maintenance cost was approximately RMB 41 million.

xii. Regarding the insect infestation, a professor visited Shansheng in April 2017.

C. Communication and Reporting

i. As far as all communications were concerned, Cai only discussed with Xiong. There was no

communication with Lin. There were written internal control procedures. Efforts were made to

comply with them such as the events surrounding the disposition of the Plantations where Xiong

was kept informed.

ii. For financial matters, monthly management accounts were submitted to Wangsheng on a regular

basis. All accounting records had been submitted to Wangsheng for annual audit purposes. The

last time where the accounting records were submitted to Wangsheng was on 27 August 2017.

Appendix B

5

iii. There was no other reporting channel as Xiong was the legal representative, chairman and general

manager of Lijiashan, which is the immediate holding company of Shansheng. Cai had no

knowledge of the reporting channels by Xiong to his immediate holding company or to

Wangsheng.

D. Control over company seal

i. There were internal control procedures for the use of company seals, namely, for use of signing

of contracts.

ii. Approval must be obtained with explanation and the purpose for the use of the company seal.

iii. There were records kept for the use of the company seal. The records were kept at their office

which were submitted to Wangsheng for the annual audit purposes.

iv. Cai kept the company seal. The other seals were kept by the finance department.

v. All contracts involving finances were kept at the finance department.

Fact-finding observations

Refer to Appendix A – interview with legal representative, Xiong.

Appendix C

1

Interview with director of the Company, Wangsheng and Yuanwang, Lin

Interviewee: Lin

Venue: 闽侯荆溪镇厚屿入园路 12 号福建望盛实业有限公司

Objective: (A) Control over legal representative(s)

(B) Rationale of leases of Plantations

(C) Process of the Disposal Transaction

Yuanwang is the immediate holding company of Lijiashan. Shansheng is a subsidiary of Lijiashan.

Lin is the director of the Company, Wangsheng and Yuanwang, and he confirmed the Disposal

Transaction was within his scope of work.

Below is the information obtained from the interview. Mr. Lin has confirmed to us before the parties

namely: FKT, Allbright, Equity Law and Yuan Tai the following to the best of his belief:

Control over company seal

i. The Subsidiaries had an internal control procedures including the management of pest control.

ii. As to the Disposal Transaction, only the company seal was required for the signing of contracts.

iii. The legal representative and the general manager of a company had the right to use the

company seal for signing contracts for the Disposal Transaction. If the subordinate needed to

use the company seal, they must complete an application form. As far as he was aware, the

company seal and the finance seal were kept by the Finance department.

iv. The legal representatives informed him for his decision on whether (i) to suspend the

Plantations operations, or (ii) to dispose of the Plantations, or (iii) obtain instructions from

superior on the direction. He gave his written approval by fax to Xiong indicating (全权处理)

or full authority to decide on the disposition of the Plantations based on what was in the

interest of the Company (以公司利益最大化为原则 ), and thereby giving the legal

representatives a free hand to deal with the issues as they deem fit. After that, he believed

that the legal representatives had dealt with their request accordingly. The records of

company seal uses were kept at the Subsidiaries offices.

Appendix C

2

Lin reported that:

i. The legal representatives realised that they needed to report on the Disposal Transaction, but

they did not know who to report to.

ii. The legal representatives thought it would be appropriate for Lin to report to the Board. Lin

was too busy managing the audit by the then, BDO auditors, and he did not follow up on the

Disposal Transaction.

iii. The legal representatives sought his view as to whether (i) to suspend the Plantations

operations, or (ii) to dispose of the Plantations, or (iii) obtain instructions from superior on the

direction.

iv. When the legal representatives did not report to him after he gave them full authority to

decide on the disposition of the Plantations, Lin thought that the legal representatives only

suspended the Plantations operation. This was because had the Plantations being disposed of,

he believed that the legal representatives would report the disposal to him again. This was

the reason why he did not report to the Board on time.

v. Lin admitted that he had personal problems.

Rationale for leasing the Plantations

i. Every industry had its own risks. However, Lin made the decision to acquire the land leases to

the Plantations at that time (in 2013 and 2014) as he was optimistic about its future prospects.

In addition, after acquiring the land leases, Shansheng and Lijiashan were profitable from the

bamboo operations. At the time of acquiring the land leases, he was not aware of any insect

infestation on the Plantations. He became aware of it subsequently.

Reason for the Disposal Transaction

i. He was not aware whether there were any special report or feasibility studies (可行性报告)

being carried out prior to acquiring the land leases to the Plantations.

ii. He was not aware as to the extent of the yield of the produce from the Plantations. However,

based on his understanding, Shansheng and Lijiashan were profitable with net profits of more

than RMB 20 million and more than RMB 10 million respectively.

Appendix C

3

iii. There were three propositions by the legal representatives, namely,

a. suspend the existing operations and business development;

b. dispose of the Plantations to offset the trade payables; or

c. obtain instructions from superior on the direction.

iv. the Plantations were disposed on 23 August 2017.

v. As to the date of the disposition of the Disposal Transaction, he represented that he was not

aware. However, he did mention that the harvesting of bamboo trees and bamboo shoots

should be in July and again in December.

vi. Whether there were any tender process or offset of transactions arising from the Disposal

Transaction, he affirmed that he had no knowledge.

vii. Whether the legal representatives had fulfilled their responsibilities, he believed they had

fulfilled.

viii. There were some proposals discussed before him and the legal representatives as well as with

the Executive Chairman, Chen. However, Lin could not remember whether these were

properly communicated.

ix. Lin represented that he was not aware of the insect infestation problems at the time of

disposal. Anyway, such problems would be settled by the legal representatives. The

instruction from Lin was to ensure the benefits accrue to the Company and the manner in

which the execution was conducted was left entirely to the discretion of the legal

representatives.

x. Lin represented that the cost of maintaining the Plantation was estimated at RMB 200 per 亩

(mu) but he had no knowledge of the selling price including how and the manner the Disposal

Transaction price was derived.

xi. Authorisation was given to the general manager and legal representative to use the company

seal. Lin represented that he had no knowledge whether the party to the Disposal Agreement

was a related party to the Disposal Transaction.

xii. Lin represented that he was not aware whether the Plantations of the Subsidiaries were

disposed of at the same time i.e. 23 August 2017.

Appendix C

4

xiii. Whether the Disposal Transaction consisted of assets other than the land lease, he was not

aware.

xiv. Lin represented that there were proper internal control procedures regarding the financial

reporting deadlines and communications with Yuanwang and to the ultimate holding

company, Yamada, which is a listed company on the SGX. However, he was not aware of any

deadlines the Subsidiaries must report their financial management information and other

communications matters or the frequency of the reporting by the Subsidiaries. He

represented that the specific financial matters and their reporting are the responsibilities of

the Finance department.

xv. As to how subsidiaries like Lijiashan and Shangsheng should deal with their asset disposal

given that Lin is the executive director at the listed company (Yamada), and that he is also the

director of Yuanwang, and that the following two subsidiaries, Lijiashan and Shansheng, were

under his leadership, he represented that he did not see the internal report on the Disposal

Transaction that was prepared by the legal representative who purportedly submitted to him.

xvi. Despite the assertion by Lin that they had proper internal control procedures in place, it was

contrary to Lin’s representation that he was not aware of the Disposal Transaction by the legal

representatives in August 2017. Lin informed that the Disposal Agreements for the Disposal

Transaction were not made available to him. As to whether the Disposal Transaction should

have been reported to the Board or announced on the SGX, he was not aware of the Disposal

Transaction at that time. In his view, the legal representatives were expected to report the

actual disposal to him. He was aware of the operational difficulties at the Plantations, but he

claimed that he was not provided any detailed information on whether the operational

difficulties were in part due to insect infestation problems.

xvii. On whether he ought to r